36% Hedge Funds and 32% Managers with $10 Billion in AUM Expect to Increase Crypto Exposure: EY Survey
As the industry better understands the asset class, “the alpha-generating opportunities will certainly create more incentive for alternative fund managers to participate in this strategy.”
Only 1 in 10 managers currently have exposure to cryptocurrencies, according to a survey published on Monday by one of the big four accounting firms Ernst & Young. But the good thing is firms are planning to increase their exposure in the coming year.
While 10% of the hedge fund managers have exposure to crypto, a mere 4% of the private equity managers are currently reporting crypto allocations through diverse means such as crypto derivatives, listing funds, and crypto companies. AUM dedicated to crypto also remains small, at 1%-2% for hedge fund managers.
But in the next one to two years, more than 20% of institutional investors and 25% of hedge fund managers said they expect to increase their exposure to cryptocurrencies.
Among these investors, the largest managers are most likely to increase their exposure, with 36% of hedge fund managers that have over $10 billion in AUM and 32% of managers with $2 billion – $10 billion in AUM reporting that they expect to increase their crypto AUM, as per the report.
When it comes to barriers to investing in crypto, the number one was that crypto does not align with their investment strategy, followed by volatility, regulatory uncertainty, lack of understanding of crypto, and immature market infrastructure.
Tax implications, lack of suitable investment opportunities, crypto not being ESG-friendly, and crypto being a bubble were the lowest factors preventing them from investing in crypto assets.
Greenwich Associates conducted the survey from July to September 2021 that polled 264 alternative institutional investors collectively holding about $5 trillion.
“2021 appears to be an inflection point where this asset class is gaining the attention of all institutional alternative fund managers,” notes the study. It further adds that alternative fund managers have become more active participants in crypto assets, drawn by uncorrelated returns and continued investment in institutional-grade infrastructure to support the space.
“As the industry and regulators continue to better understand this asset class, the alpha-generating opportunities will certainly create more incentive for alternative fund managers to participate in this strategy.”